AGCO Reports First Quarter Results

Full-year Outlook Increased

DULUTH, Ga.–(BUSINESS WIRE)–AGCO, Your Agriculture Company (NYSE:AGCO), a worldwide manufacturer and
distributor of agricultural equipment and solutions, reported net sales
of approximately $2.0 billion for the first quarter of 2019, a decrease
of approximately 0.6% compared to the first quarter of 2018. Reported
net income was $0.84 per share for the first quarter of 2019, and
adjusted net income, excluding restructuring expenses, was $0.86 per
share. These results compare to a reported net income of $0.30 per share
and adjusted net income, excluding restructuring expenses, of $0.35 per
share for the first quarter of 2018. Excluding unfavorable currency
translation impacts of approximately 7.1%, net sales in the first
quarter of 2019 increased approximately 6.5% compared to the first
quarter of 2018.

First Quarter Highlights

  • Reported regional sales results(1): North
    America (1.3)%, Europe/Middle East (“EME”) +4.0%, South America
    (14.3)%, Asia/Pacific/Africa (“APA”) (16.3)%
  • Constant currency regional sales results(1)(2):
    North America (0.6)%, EME +13.2%, South America (2.6%), APA (9.6)%
  • Operating margin improvement of 190 basis points vs. first quarter of
    2018
  • Regional operating margin performance: North America 6.2%, EME 10.5%,
    South America (5.4)%, APA 2.6%
  • Share repurchase program reduced outstanding shares by approximately
    0.4 million during the first three months of 2019
  • Increased full-year outlook for net income per share
(1)As compared to first quarter 2018
(2)Excludes currency translation impact.
See reconciliation in appendix.
 

“Focused operational performance across our regional business units and
supportive market conditions are driving sales and earnings growth,”
stated Martin Richenhagen, AGCO’s Chairman, President and Chief
Executive Officer. “AGCO’s first quarter results demonstrated solid
progress towards our margin improvement goals for 2019. Led by our
Europe/Middle East region, AGCO’s first quarter 2019 adjusted operating
margins improved over 190 basis points compared to the first quarter of
2018. Our margin expansion resulted from organic sales growth, an
improved pricing environment and initiatives aimed at lowering material
costs and improving productivity. We have raised our outlook for the
full year to reflect our confidence in our continued strong performance
and in the market recovery.”

Market Update

Industry Unit Retail Sales

       
Three months ended March 31, 2019

Tractors

Change from

Prior Year Period

Combines

Change from

Prior Year Period

 
North America(1) (3)% 28%
South America (2)% 34%
Western Europe(2) 2% (11)%
 

(1)Excludes compact tractors.

(2)Based on Company estimates.

 

“Farm economics remained challenged across many of the major
crop-producing regions and global trade tensions continue to weigh on
farmer sentiment,” continued Mr. Richenhagen. “Global farm equipment
demand continues on a slow recovery path following an extended period of
decline. Planting across much of the U.S. farm belt is delayed due to
cold, wet weather and flooding in portions of the Midwest. Farmer
concerns over the lingering trade disputes with China and the resulting
increase in soybean inventories has curtailed replacement demand from
row crop farmers. North American industry retail sales decreased in the
first three months of 2019 compared to the same period in 2018. We
expect North American industry retail tractor sales to increase modestly
in 2019 with improved retail sales in the row crop segment and flat
retail sales of small tractors compared to last year. Relatively warm
weather across much of Europe has been positive for the development of
the winter wheat crop. Milk prices remain supportive of the dairy sector
in Western Europe. Industry retail sales in Western Europe increased
modestly in the first three months of 2019, following a year of mixed
results in 2018 for the arable farming segment. Industry sales growth in
France and Germany was partially offset by declines in the United
Kingdom and Italy. For the full year of 2019, industry demand in Western
Europe is expected to be flat compared to 2018. Industry retail sales in
South America decreased during the first three months of 2019. Industry
sales declined significantly in Argentina in response to lower crop
production and farm income in 2018 while industry demand in Brazil
improved modestly. Grain production in South America is ahead of last
year’s pace and industry demand is expected to increase modestly
compared to 2018. Looking ahead, we are optimistic about the long-term
outlook for the global agricultural equipment industry supported by
healthy fundamentals for commodity prices and farm income.”

Regional Results

AGCO Regional Net Sales (in millions)

                   
Three Months Ended March 31, 2019 2018

%
change
from
2018

% change from
2018 due to
currency
translation(1)

% change
excluding
currency
translation

 
North America $ 496.2 $ 502.9 (1.3)% (0.8)% (0.6)%
South America 156.1 182.1 (14.3)% (11.6)% (2.6)%
Europe/Middle East 1,210.6 1,163.7 4.0% (9.1)% 13.2%
Asia/Pacific/Africa 132.9   158.8   (16.3)% (6.7)% (9.6)%
Total $ 1,995.8   $ 2,007.5   (0.6)% (7.1)% 6.5%
 

(1) See appendix for additional
disclosures

 

North America

AGCO’s North American net sales decreased 0.6% in the first three months
of 2019 compared to the same period of 2018, excluding the negative
impact of currency translation. Lower sales of tractors and grain and
protein production equipment were mostly offset by growth in the sales
of application equipment as well as hay and forage equipment. Income
from operations for the first three months of 2019 improved
approximately $3.8 million compared to the same period in 2018. The
benefit of improved pricing and sales mix contributed most of the
increase.

South America

Net sales in the South American region decreased 2.6% in the first three
months of 2019 compared to the first three months of 2018, excluding the
impact of unfavorable currency translation. Income from operations
improved approximately $8.1 million in the first quarter compared to the
same period in 2018. The South America results in the first quarter
reflect seasonally low levels of industry demand and company production,
as well as cost impacts associated with the transition of newer product
technology into our Brazilian factories.

Europe/Middle East

Europe/Middle East net sales increased 13.2% in the first three months
of 2019 compared to the same period in 2018, excluding unfavorable
currency translation impacts. Sales growth was strongest in France, the
United Kingdom and Spain. Income from operations improved approximately
$28.7 million for the first three months of 2019, compared to the same
period in 2018, due to the benefit of higher sales and production,
pricing and the timing of engineering costs compared to the prior year.

Asia/Pacific/Africa

Net sales in AGCO’s Asia/Pacific/Africa region decreased 9.6%, excluding
the negative impact of currency translation, in the first three months
of 2019 compared to the same period in 2018. Lower sales in Asia and
Australia produced most of the decrease. Income from operations declined
approximately $1.3 million in the first three months of 2019, compared
to the same period in 2018, due to lower sales levels.

Outlook

Global industry demand is projected to improve modestly in 2019. AGCO’s
net sales for 2019 are expected to reach approximately $9.5 billion
reflecting improved sales volumes and positive pricing, offset by
unfavorable foreign currency translation impacts. Gross and operating
margins are expected to improve from 2018 levels, reflecting the
positive impact of pricing and cost reduction efforts. Based on these
assumptions, 2019 earnings per share are targeted at approximately $4.88
on a reported basis, or approximately $4.90 on an adjusted basis, which
excludes restructuring expenses.

* * * * *

AGCO will be hosting a conference call with respect to this earnings
announcement at 10:00 a.m. Eastern Time on Thursday, May 2, 2019. The
Company will refer to slides on its conference call. Interested persons
can access the conference call and slide presentation via AGCO’s website
at www.agcocorp.com
in the “Events” section on the “Company/Investors” page of our website.
A replay of the conference call will be available approximately two
hours after the conclusion of the conference call for twelve months
following the call. A copy of this press release will be available on
AGCO’s website for at least twelve months following the call.

* * * * *

Safe Harbor Statement

Statements that are not historical facts, including the projections of
earnings per share, sales, industry demand, market conditions, commodity
prices, currency translation, farm income levels, margin levels,
investments in product and technology development, new product
introductions, restructuring and other cost reduction initiatives,
production volumes, tax rates and general economic conditions, are
forward-looking and subject to risks that could cause actual results to
differ materially from those suggested by the statements. The following
are among the factors that could cause actual results to differ
materially from the results discussed in or implied by the
forward-looking statements.

  • Our financial results depend entirely upon the agricultural industry,
    and factors that adversely affect the agricultural industry generally,
    including declines in the general economy, increases in farm input
    costs, lower commodity prices, lower farm income and changes in the
    availability of credit for our retail customers, will adversely affect
    us.
  • A majority of our sales and manufacturing take place outside the
    United States, and, many of our sales involve products that are
    manufactured in one country and sold in a different country, and as a
    result, we are exposed to risks related to foreign laws, taxes and
    tariffs, trade restrictions, economic conditions, labor supply and
    relations, political conditions and governmental policies. These risks
    may delay or reduce our realization of value from our international
    operations. Among these risks are the uncertain consequences of
    Brexit, Russian sanctions and tariffs imposed on exports to and
    imports from China.
  • Most retail sales of the products that we manufacture are financed,
    either by our joint ventures with Rabobank or by a bank or other
    private lender. Our joint ventures with Rabobank, which are controlled
    by Rabobank and are dependent upon Rabobank for financing as well,
    finance 40% to 50% of the retail sales of our tractors and combines in
    the markets where the joint ventures operate. Any difficulty by
    Rabobank to continue to provide that financing, or any business
    decision by Rabobank as the controlling member not to fund the
    business or particular aspects of it (for example, a particular
    country or region), would require the joint ventures to find other
    sources of financing (which may be difficult to obtain), or us to find
    another source of retail financing for our customers, or our customers
    would be required to utilize other retail financing providers. As a
    result of the recent economic downturn, financing for capital
    equipment purchases generally has become more difficult in certain
    regions and in some cases, can be expensive to obtain. To the extent
    that financing is not available or available only at unattractive
    prices, our sales would be negatively impacted.
  • Both AGCO and our finance joint ventures have substantial account
    receivables from dealers and end customers, and we would be adversely
    impacted if the collectability of these receivables was not consistent
    with historical experience; this collectability is dependent upon the
    financial strength of the farm industry, which in turn is dependent
    upon the general economy and commodity prices, as well as several of
    the other factors listed in this section.
  • We have experienced substantial and sustained volatility with respect
    to currency exchange rate and interest rate changes, which can
    adversely affect our reported results of operations and the
    competitiveness of our products.
  • Our success depends on the introduction of new products, particularly
    engines that comply with emission requirements, which requires
    substantial expenditures.
  • Our production levels and capacity constraints at our facilities,
    including those resulting from plant expansions and systems upgrades
    at our manufacturing facilities, could adversely affect our results.
  • Our expansion plans in emerging markets, including establishing a
    greater manufacturing and marketing presence and growing our use of
    component suppliers, could entail significant risks.
  • Our business increasingly is subject to regulations relating to
    privacy and data protection, and if we violate any of those
    regulations or otherwise are the victim of a cyber attack, we could
    incur significant losses and liability.
  • We depend on suppliers for components, parts and raw materials for our
    products, and any failure by our suppliers to provide products as
    needed, or by us to promptly address supplier issues, will adversely
    impact our ability to timely and efficiently manufacture and sell
    products. We also are subject to raw material price fluctuations,
    which can adversely affect our manufacturing costs.
  • We face significant competition, and if we are unable to compete
    successfully against other agricultural equipment manufacturers, we
    would lose customers and our net sales and profitability would decline.
  • We have a substantial amount of indebtedness, and, as a result, we are
    subject to certain restrictive covenants and payment obligations that
    may adversely affect our ability to operate and expand our business.

Further information concerning these and other factors is included in
AGCO’s filings with the Securities and Exchange Commission, including
its Form 10-K for the year ended December 31, 2018. AGCO disclaims any
obligation to update any forward-looking statements except as required
by law.

About AGCO

AGCO (NYSE:AGCO) is a global leader in the design, manufacture and
distribution of agricultural solutions and delivers high-tech solutions
for farmers feeding the world through its full line of equipment and
related services. AGCO products are sold through five core brands,
Challenger®, Fendt®, GSI®, Massey Ferguson® and Valtra®, supported by
Fuse® smart farming solutions. Founded in 1990 and headquartered in
Duluth, Georgia, USA, AGCO had net sales of $9.4 billion in 2018. For
more information, visit http://www.AGCOcorp.com.
For company news, information and events, please follow us on Twitter:
@AGCOCorp. For financial news on Twitter, please follow the hashtag
#AGCOIR.

Please visit our website at www.agcocorp.com

       

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in millions)

 
March 31, 2019 December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents $ 292.8 $ 326.1
Accounts and notes receivable, net 928.5 880.3
Inventories, net 2,307.6 1,908.7
Other current assets 432.4   422.3  
Total current assets 3,961.3 3,537.4
Property, plant and equipment, net 1,363.3 1,373.1
Right-of-use lease assets 193.8
Investment in affiliates 393.2 400.0
Deferred tax assets 119.7 104.9
Other assets 132.1 142.4
Intangible assets, net 555.3 573.1
Goodwill 1,485.6   1,495.5  
Total assets $ 8,204.3   $ 7,626.4  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt $ 68.4 $ 72.6
Short-term borrowings 181.5 138.0
Senior term loan 224.7
Accounts payable 964.3 865.9
Accrued expenses 1,441.0 1,522.4
Other current liabilities 174.8   167.8  
Total current liabilities 3,054.7 2,766.7
Long-term debt, less current portion and debt issuance costs 1,404.3 1,275.3
Operating lease liabilities 150.8
Pensions and postretirement health care benefits 216.8 223.2
Deferred tax liabilities 106.8 116.3
Other noncurrent liabilities 251.9   251.4  
Total liabilities 5,185.3   4,632.9  
 
Stockholders’ Equity:
AGCO Corporation stockholders’ equity:
Common stock 0.8 0.8
Additional paid-in capital 9.7 10.2
Retained earnings 4,491.0 4,477.3
Accumulated other comprehensive loss (1,545.8 ) (1,555.4 )
Total AGCO Corporation stockholders’ equity 2,955.7 2,932.9
Noncontrolling interests 63.3   60.6  
Total stockholders’ equity 3,019.0   2,993.5  
Total liabilities and stockholders’ equity $ 8,204.3   $ 7,626.4  
 

See accompanying notes to condensed consolidated financial
statements.

 
   

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in millions, except per share data)

 
Three Months Ended March 31,
2019     2018
Net sales $ 1,995.8 $ 2,007.5
Cost of goods sold 1,539.1   1,579.5  
Gross profit 456.7 428.0
Selling, general and administrative expenses 262.2 264.6
Engineering expenses 84.5 90.9
Restructuring expenses 1.7 5.9
Amortization of intangibles 15.3 15.7
Bad debt expense 0.6   0.4  
Income from operations 92.4 50.5
Interest expense, net 3.5 10.3
Other expense, net 14.6   11.5  
Income before income taxes and equity in net earnings of affiliates 74.3 28.7
Income tax provision 19.4   11.4  
Income before equity in net earnings of affiliates 54.9 17.3
Equity in net earnings of affiliates 10.8   7.7  
Net income 65.7 25.0
Net income attributable to noncontrolling interests (0.6 ) (0.7 )
Net income attributable to AGCO Corporation and subsidiaries $ 65.1   $ 24.3  
Net income per common share attributable to AGCO Corporation and
subsidiaries:
Basic $ 0.85   $ 0.31  
Diluted $ 0.84   $ 0.30  
Cash dividends declared and paid per common share $ 0.15   $ 0.15  
Weighted average number of common and common equivalent shares
outstanding:
Basic 76.6 79.6
Diluted 77.5 80.5
 

See accompanying notes to condensed consolidated financial
statements.

 
   

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in millions)

 
Three Months Ended March 31,
2019     2018
 
Cash flows from operating activities:
Net income $ 65.7 $ 25.0
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 53.0 59.2
Amortization of intangibles 15.3 15.7
Stock compensation expense 12.5 9.2
Equity in net earnings of affiliates, net of cash received (10.1 ) (4.3 )
Deferred income tax benefit (8.6 ) (7.0 )
Other 0.8 0.1
Changes in operating assets and liabilities, net of effects from
purchase of businesses:
Accounts and notes receivable, net (65.7 ) 6.2
Inventories, net (418.6 ) (398.2 )
Other current and noncurrent assets (4.9 ) (36.2 )
Accounts payable 127.5 66.4
Accrued expenses (107.7 ) (108.4 )
Other current and noncurrent liabilities 10.9   11.0  
Total adjustments (395.6 ) (386.3 )
Net cash used in operating activities (329.9 ) (361.3 )
Cash flows from investing activities:
Purchases of property, plant and equipment (60.9 ) (46.1 )
Proceeds from sale of property, plant and equipment 1.5
Other   0.4  
Net cash used in investing activities (60.9 ) (44.2 )
Cash flows from financing activities:
Proceeds from indebtedness, net 423.1 401.5
Purchases and retirement of common stock (30.0 ) (7.1 )
Payment of dividends to stockholders (11.5 ) (11.9 )
Payment of minimum tax withholdings on stock compensation (23.0 ) (3.2 )
Payment of debt issuance costs (0.5 )
Investment by noncontrolling interests 0.6    
Net cash provided by financing activities 358.7   379.3  
Effects of exchange rate changes on cash and cash equivalents (1.2 ) 6.7  
Decrease in cash and cash equivalents (33.3 ) (19.5 )
Cash and cash equivalents, beginning of period 326.1   367.7  
Cash and cash equivalents, end of period $ 292.8   $ 348.2  
 

See accompanying notes to condensed consolidated financial
statements.

 

AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, in millions, except share amounts,
per share data and employees)

1. STOCK COMPENSATION EXPENSE

The Company recorded stock compensation expense as follows:

   
Three Months Ended March 31,
2019     2018
Cost of goods sold $ 0.5 $ 0.8
Selling, general and administrative expenses 12.0   8.4
Total stock compensation expense $ 12.5   $ 9.2
 

2. RESTRUCTURING EXPENSES

From 2014 through 2019, the Company announced and initiated several
actions to rationalize employee headcount at various manufacturing
facilities and administrative offices located in Europe, South America,
China and the United States in order to reduce costs in response to
softening global market demand and lower production volumes. The
aggregate headcount reduction was approximately 3,890 employees between
2014 and 2018. The Company had approximately $7.1 million of severance
and related costs accrued as of December 31, 2018. During the three
months ended March 31, 2019, the Company recorded an additional $1.7
million of severance and related costs associated with further
rationalizations associated with the termination of approximately 30
employees, and paid approximately $2.6 million of severance and
associated costs. The $1.7 million of costs incurred during the three
months ended March 31, 2019 included a $0.3 million write-down of
property, plant and equipment. The remaining $5.8 million of accrued
severance and other related costs as of March 31, 2019, inclusive of
approximately $ 0.1 million of negative foreign currency translation
impacts, are expected to be paid primarily during 2019.

3. INDEBTEDNESS

Long-term debt at March 31, 2019 and December 31, 2018 consisted of the
following:

    March 31, 2019     December 31, 2018
1.056% Senior term loan due 2020 $ 224.7 $ 228.7
Senior term loan due 2022 168.5 171.5
Credit facility, expires 2023 207.9 114.4
1.002% Senior term loan due 2025 280.9
Senior term loans due between 2019 and 2028 801.1 815.3
Other long-term debt 17.1 20.6
Debt issuance costs (2.8 ) (2.6 )
1,697.4 1,347.9
Less: 1.056% Senior term loan due 2020 (224.7 )
Senior term loans due 2019 (62.9 ) (63.8 )
Current portion of other long-term debt (5.5 ) (8.8 )
Total long-debt, less current portion $ 1,404.3   $ 1,275.3  
 

As of March 31, 2019 and December 31, 2018, the Company had short-term
borrowings due within one year of approximately $181.5 million and
$138.0 million, respectively.

4. INVENTORIES

Inventories at March 31, 2019 and December 31, 2018 were as follows:

    March 31, 2019     December 31, 2018
Finished goods $ 841.3 $ 660.4
Repair and replacement parts 629.8 587.3
Work in process 289.6 217.5
Raw materials 546.9   443.5
Inventories, net $ 2,307.6   $ 1,908.7
 

5. ACCOUNTS RECEIVABLE SALES AGREEMENTS

The Company has accounts receivable sales agreements that permit the
sale, on an ongoing basis, of a majority of its wholesale receivables in
North America, Europe and Brazil to its U.S., Canadian, European and
Brazilian finance joint ventures. As of both March 31, 2019 and
December 31, 2018, the cash received from receivables sold under the
U.S., Canadian, European and Brazilian accounts receivable sales
agreements was approximately $1.4 billion.

Losses on sales of receivables associated with the accounts receivable
financing facilities discussed above, reflected within “Other expense,
net” in the Company’s Condensed Consolidated Statements of Operations,
were approximately $8.7 million and $7.8 million, respectively, during
the three months ended March 31, 2019 and 2018, respectively.

The Company’s finance joint ventures in Europe, Brazil and Australia
also provide wholesale financing directly to the Company’s dealers. As
of March 31, 2019 and December 31, 2018, these finance joint ventures
had approximately $88.

Contacts

Greg Peterson
Vice President, Investor Relations
770-232-8229
greg.peterson@agcocorp.com

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